As U.S. Car Makers Cut Back, Toyota Is Expanding Briskly

By DAVID E. SANGER, Special to The New York Times

Published: January 1, 1991

TOYOTA CITY, Japan—
At a time when the American automobile industry is laying off thousands of workers, shuttering factories and bracing for a recession, Kunihiko Minami, the chief of operations at the Toyota Motor Corporation's sprawling Takaoka plant here, says he has his own problems: he cannot find enough auto workers.

Even as the General Motors Corpo ration plans to close up to nine plants in the United States that employ tens of thousands of workers, Toyota is expanding at a breakneck pace and looking desperately for people to hire.

Japan's largest car maker is an example, if an extreme one, of the pace at which many Japanese manufacturers are investing in new plants, new products and new technology, even in the face of a recession in the United States and slower growth at home.

Japan's biggest industrial companies decided years ago that an economic slowdown is the best time to build more efficient manufacturing plants. Usually, though sometimes after considerable bruising from price-cutting battles, they have emerged with larger market shares when economic fortunes have reversed.

"It has happened before, and I suspect we are seeing it again," said Masaru Yoshitomi, the director general of the research institute of Japan's Economic Planning Agency. "Pioneering companies try to make investments during a recession, usually to reduce their labor costs. And in most cases, it has worked."

Toyota said recently that it would build three factories, including one expected to produce 200,000 luxury cars a year. The factories will be in rural corners of Japan where the competition for workers is less intense.

Last month Toyota announced that it would also double production in Kentucky, its flagship overseas manufacturing site where it is already producing 200,000 cars a year. And all over this drab city, which in the 1980's became a symbol of Japan's competitive challenge to the United States, engineering centers, laboratories and training centers are under construction.

In 1989, Toyota was second to G.M. in production, building slightly less than four million vehicles. Through October, production was running 6.5 percent ahead of 1989.

Certainly Japan, too, is beginning to feel te effects of harder times -- battered financial markets, worry about land prices and a sudden credit crunch. But what seems most surprising is that the troubles are having relatively little effect on its best manufacturers, which are less vulnerable than many small companies here.

The strategy of increasing capacity and cutting prices to gain market share certainly worked in the mid-1980's, when Japan's biggest electronics giants built enormous plants to make the most common type of memory chips. Despite huge initial losses, they emerged with an 80 percent share of the market. The prospect that the strategy could work again, and deepen conflicts between Japan and the United States, is something Japanese Government officials are increasingly describing as one of their biggest fears in the new year.

"The tension you have seen up to now between the United States and Japan came when both economies were expanding," a senior official in Japan's Foreign Ministry said recently. The image of Japan gaining a larger share of key markets in the United States during a recession "is one of our nightmares," he added.

Toyota's expansion plans have hardly been welcomed by the Government. Fearing that the car company would use its new capacity to export cars -- and thus increase Japan's trade surplus -- the Ministry of International Trade and Industry earlier put pressure on Toyota to curb its plans. In a rare act of public defiance, the company refused.

And Toyota is showing no signs of backing away, even as economists and the Government have been warning industry that the home market, which has provided the fuel for huge capital investments over the last three years, will grow only 3.8 percent in the next fiscal year as measured in gross national product after adjusting for inflation. That figure would be greeted as boom times in the United States but would mark Japan's slowest growth in four years.

Moreover, the days of easy access to cheap capital for Japanese companies are clearly over. Interest rates here have surged this year, and Japan's banks, which once fell over one another to lend money for plant expansions and research and development, are turning away borrowers as their profits tumble.

While many predicted that such changes would finally derail Japan's rapid growth, it is becoming clear that the huge majority of capital spending by Japanese companies is financed internally from their retained profits. While most plans for investment in plants and equipment call for less than half of the 14 to 20 percent growth in recent years, a period of remarkable strength, they remain ambitious by any international comparison.

Japanese executives offer two other important reasons why they can expand more easily than foreign competitors. First, they say, there is less pressure from shareholders for high profits, because most of the stock of the companies is owned by other closely affiliated companies rather than by individuals and unrelated institutions looking for big dividends. In fact, profits are expected to decline about 15 percent this year.

The second is that Japan's largest companies can spread the expense of expanding capacity to their tight network of suppliers and affiliated companies, which cannot refuse their largest customer. For example, Toyota has pressed important affiliates like Nippondenso, its chief supplier of electrical components, to invest heavily in more efficient manufacturing technology that will enable them to cut their prices to Toyota.

"It's coercive, but it works," an executive of a leading Toyota supplier said somewhat ruefully.

And the companies that spent the 1980's amassing huge hoards of cash -- not only Toyota, which has $18 billion in the bank, but also the Matsushita Electric Industrial Company, the biggest members of the Mitsubishi Group and many other giant companies -- can finance their own ambitious expansion plans on a scale that few of their American competitors could think about these days.

Publicly Toyota's leadership likes to describe its investments in new plants and equipment as almost an international obligation. "Should the auto industry suffer a downturn in Japan, it will create problems all over the world," Shoichiro Toyoda, the president of Toyota and a member of its founding family, said in a recent interview.

The Nissan Motor Company is also expanding but not at Toyota's pace. "That is why we call them 'Toyota Bank,' " said Yukihiko Eguchi, a Nissan spokesman. "It is a bit different for the rest of us." Nissan, in fact, is more bearish than Toyota, and more dependent on borrowed money. Even so, it is adding capacity at one of its biggest plants in Japan, doubling its production in Tennessee to 450,000 cars a year and finishing a factory in England. Expansion in Electronics

Many large Japanese electronics companies are also expanding. The companies are racing to increase production of the four-megabit DRAM, the latest generation of memory chip, capable of storing more than four million bits of information.

Despite growing evidence that the market might be flooded with the new chips, Hitachi Ltd. and the Toshiba Corporation are both planning to produce two million four-megabit chips a month by spring. Once again, their biggest fear is losing market share. And the race is already on to ship samples of the 16-megabit chip, lest any company get a reputation for being a technological laggard.

Not every industry is preparing for such expansion. Steelmakers, after years of unexpectedly strong growth, say that in 1991 steel production will decline slightly from this year's production of 110 million tons, which was the highest in 11 years. Shipbuilders are also looking for a slowdown. Growth in Autos Expected

For Toyota, domestic car sales have grown 10 percent this year -- a huge figure considering that Toyota accounts for nearly a third of Japan's car market. And while the American automobile market is expected to be stagnant next year, both Toyota and the Honda Motor Company, the most successful Japanese manufacturers in the United States, say they expect growth.

What that means, but what few executives here want to discuss, is a further erosion of market share for the American auto makers.

No matter what happens in the United States, Japanese auto makers say they have a new form of insurance: the huge investment they have made in Southeast Asia, an area where American auto makers have little presence. Countries like Thailand are among the fastest-growing car markets in the world, and they are overwhelmingly dominated by Japanese producers. Yoshiro Kimbara, one of Toyota's senior managing directors and a member of its board, said that investment would begin to pay off, compensating for declines in the American and European markets. Biggest Challenge to Americans

Much of the more than $4 billion that Toyota will spend in the fiscal year that ends next June will be directed at remaking its existing plants -- and that may pose the biggest competitive challenge to American competitors.

The Takaoka plant, for example, served as the model for the Toyota-G.M. joint venture in Fremont, Calif. But the plant today bears little resemblance to the one that was copied in the most famous experiment yet in joint American-Japanese manufacturing.

Toyota has continued to pour tens of millions of dollars into the plant, installing a huge row of robots that can weld the main parts of a car body with almost no human intervention and can automatically be adjusted to handle several different kinds of car bodies.

Toyota is slowly using the plant to introduce technologies it developed to build its newest luxury car, the year-old Lexus. For example, over the next few years, Toyota officials say, all their cars will use a special laser-welding technique that allows different thicknesses of steel to be combined in the car body. Building Design Centers

All this has hardly made Toyota, or other Japanese companies investing heavily here, invincible. More than a few of the company's newest car models have underwhelmed Japanese car buyers, and some of its designs still look clunky, conservative or both. The company is worried enough about that to invest heavily in building design centers, including one in downtown Tokyo aimed at making cars that appeal to urban Japanese. Design centers are also expanding in the United States and Europe.

But in the end, Toyota and other Japanese manufacturers seem confident that recession or not, they are wise to invest heavily now. "The results of what we are doing now won't appear for four years," Mr. Kimbara said. "And though it is not our ultimate goal to expand our market share, it is good for us if more people think Toyota cars are what they want. Remember, only a third of the world's population is using cars. We have a long way to go."

Photo: The Toyota Motor Corporation, at a time when U.S. auto makers are closing plants, is expanding at a breakneck pace hoping to become an even strongercompetitor. At the company's Takaoka plant in Toyota City, Japan, a worker installs wheels near the end of the production line. (Toyota Motor Corporation) (pg. 53)